ABSTRACT
This chapter explains some of the significant economic issues that energy policy makers face in planning natural gas development and consumption. Natural gas is one of several major energy resources, and the fundamental economic principles that govern the appraisal of any natural resource project apply to natural gas. The importance of these economic principles is that they help energy policy makers assess the cost and value of natural gas to the economy. Economic theory holds that, in order to provide an efficient allocation of resources, the price of a good should be equal to the marginal cost of expanding the output of the good so that it clears the market. To determine the marginal cost of supplying gas, economists and engineers in gas companies work closely following an iterative process to plan the system. For a number of developing countries, indigenous natural gas resources hold the key to reducing expensive reliance on oil.
